Those who seek, find – perhaps

19.05.2009
The National Energy Authority of Iceland is sure that hydrocarbons exist in the Dreki area of the Jan Mayen Ridge. Everything else is highly uncertain.

Thorarinn S Arnarsson (left), Gudni A Johannesson and Kristinn Einarsson

Thorarinn S Arnarsson (left), Gudni A Johannesson and Kristinn Einarsson have prepared the licensing round at the National Energy Authority, Iceland’s equivalent of the NPD.

 

National Energy Agency

The NEA is responsible for advising the Icelandic government on energy issues and related topics.

It will also award licences to explore for and produce hydrocarbons, and supervise compliance with legislation, statutory regulations and licence terms.

Another of its duties is to gather data and commission research related to the development and use of energy resources.

 

Four-five staff at the agency in Reykjavik have been working on the country’s offshore licensing round since the government gave a green light for oil exploration in December 2007.

“We don’t know whether we’ll find oil or gas,” says director-general Gudni A Johannesson at the NEA, which covers many of the same duties as the NPD. “We’re also unsure about the volumes involved and whether a possible discovery will be commercial.”

The most important reason for this uncertainty about the Dreki area is that it has been little explored, providing limited geophysical information.

“It’s only been mapped by twodimensional seismic surveys, with the lines wide apart,” explains Kristinn Einarsson, project coordinator for energy resources at the NEA. “Nor have exploration wells been drilled there.”

 

Not positive

Seismic data were acquired from the area by the Norwegian and Icelandic authorities in 1985 and 1988, but the findings were not positive. The probability of making commercial discoveries was regarded as low.

Wavefield InSeis (now CGGVeritas) shot seismic in 2001 and 2008, with deeper cables which let it “see” through the hard overlying basalt layers and acquire a clearer sub-surface picture.

Ahead of the licensing round, Spectrum reprocessed 5 237 kilometres of 2D seismic data from the 1980 surveys. New and better technology allowed the company’s geoscientists to claim a dramatically better view of what lies hidden beneath the basalt.

They have concluded that little information is known about the prospectivity of the area – the likelihood that it contains hydrocarbons.

But well-documented correlations with source and reservoir rocks in adjacent areas of the Norwegian and Greenland continental shelves provide promising indications.

Geological developments are likely to have been comparable off Iceland. The Jan Mayen Ridge is a micro-continent with similarities to east Greenland and mid Norway, and forms part of the continental crust.

It contains sediments of sufficient thickness and age to hold a great deal of hydrocarbons, and many formations similar to source rocks found in Greenland.

Submarine fans in the area indicate potential reservoirs, and classic rock formations such as rotated fault blocks provide attractive exploration targets.

 

Thinner basalt

Although the Dreki area is covered with basalt, these volcanic layers are thinner than on the Faroese continental shelf where no commercial finds have so far been made.

The NEA expects this region to be more like the deep parts of the Norwegian Sea than the waters off the Faroes, explains Mr Einarsson.

“But the area needs to be better mapped, with three-dimensional seismic surveys and perhaps electromagnetic surveying as well,” he says.

What he and his colleagues know is that Dreki lies far from land, in waters between 1 000-2 000 metres deep. Wave conditions are better than on the NCS, because Iceland provides protection against much of the wind from the south and south-west.

But temperatures are low, and fog can present problems during the summer season.

“However, we know it’s possible to overcome these conditions,” says Thorarinn S Arnarsson, hydrocarbon licensing manager at the NEA. “The technology is already used in such areas as the deepwater Gulf of Mexico and the Barents Sea.”

About a month after the licensing round was announced in late February, no applications had been received for any of the blocks on offer. But a lot of companies had requested geological data from the NEA.

The deadline for applications is 15 May, and the agency aims to award licences in late October. If exploration acreage is awarded in the Jan Mayen agreement area (see separate article), Norway can take a 25 per cent holding in the licence.

“Norway, probably through Petoro, has 30 days to give notice of its desire to participate before the award is made,” says Mr Einarsson. “That means from late September to late October.”

Petoro manages the State’s Direct Financial Interest in petroleum operations on the NCS.

Since the oil companies are constantly seeking additional acreage, the NEA expects the Icelandic continental shelf to interest them.

Many people believe that a large proportion of the world’s remaining undiscovered hydrocarbons lie in the Arctic, and Dreki could form part of an exploration portfolio in the far north.

 

Very large

The NEA accepts that a possible gas discovery would have to be very large to make its development commercial.

In such a case, the licensees are likely to opt for a subsea solution with the unprocessed wellstream carried in a multiphase flow pipeline to a processing plant on land. After separation, the gas would be liquefied for export by ship.

Should oil be discovered, the most probable solution is to develop it with a floating production, storage and offloading (FPSO) unit. Production would be shipped away by shuttle tanker.

 

Limited expertise

Since Iceland has not produced oil and gas so far, the country’s expertise in exploration for, production and administration of hydrocarbons is naturally limited.

It is roughly at the stage Norway was in when the international oil companies arrived to hunt for oil at the southern end of its North Sea sector in the 1960s.

But Iceland has solid specialist knowledge of geothermal energy, which will provide a good basis if it becomes necessary to develop national petroleum expertise.

“We’ll have to pull ourselves up by our own bootstraps,” says Mr Johannesson. “Fortunately, we’ve received valuable help from our neighbours, including the NPD.”

The present strategy is not to become actively involved in costly projects. All data have been made available, and it is then up to the companies to do the job – and take the financial risk.

They will pay a small fee for the right to explore, in order to cover administrative costs. Their contributions will otherwise come through the tax regime. Iceland has no oil companies of its own at present.

“Legislation allows us to establish a state-owned company similar to Petoro,” says Mr Einarsson. “That could be relevant if Norway opens its part of the Jan Mayen agreement area.”

Iceland could also establish a fund financed by the licensees on its continental shelf, with the return on these assets applied to research projects in the country.

 

The Dreki area

The Dreki area

The Dreki (Dragon) area lies midway between Jan Mayen and Iceland, around 300 kilometres from the north-eastern Icelandic coast. Iceland’s first licensing round is in the northern part of Dreki, which covers 42 700 square kilometres. It borders the NCS around Jan Mayen.

The water depth over 80 per cent of the area is between 1 000-2 000 metres. The mean temperature is 5°-8°C in the summer and -2°C to 0°C in the winter, while average wind speeds are six and 10 metres per second respectively.

Fog is frequent during the summer months, with occasional icing in the winter. But sea ice is not a threat with today’s climate. Waves are lower than off western Norway, with the 100-year wave about 12 and 14 metres respectively. Fishing in the area is limited, with only fairly common species of whales and seabirds identified.


Collaborati on off Jan Mayen

Two-dimensional seismic has been acquired in the Dreki area.

Two-dimensional seismic has been acquired in the Dreki area.


Norway can take a 25 per cent stake in petroleum operations in the Icelandic share of the Jan Mayen agreement area in the North Atlantic, and vice versa.

This provision is enshrined in the agreement between the two countries of 22 October 1981 on the continental shelf in the area between Iceland and Jan Mayen.

While the seabed around Jan Mayen falls under Norwegian jurisdiction, it borders the Icelandic continental shelf. The deal between the two nations covers joint exploitation of possible deposits and mutual participation in a defined area.

Lying on both sides of the median line, this region covers 45 509 square kilometres or almost the size of Norway’s northernmost county of Finnmark.

The two countries signed another agreement on transboundary hydrocarbon deposits between Jan Mayen and Iceland last November to define the terms on which one party could begin exploitation.

Norway has earlier concluded a number of such accords, particularly in the North Sea. The agreement with Iceland builds on and extends the principles enshrined in the earlier deals.

It conforms with established international legal practice and specifies that the whole transboundary region will be exploited as a single entity, which is appropriate in resource terms.

Covering the whole boundary area between the Norwegian and Icelandic continental shelves, the agreement was approved by Norway’s Council of State on 27 February 2009. Since this accord is regarded as particularly important, the Storting (parliament) will also debate it.

The Norwegian continental shelf extending up to 200 nautical miles from Jan Mayen covers a total of 292 394 square kilometres, corresponding to 90 per cent of mainland Norway. This area has not been opened for petroleum operations.